Social Security can continue to protect future generations if action is taken now, says the Board of Trustees of the federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds in its annual report to Congress.
The Board—comprised the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Services, the Commissioner of Social Security and two other members that are to appointed by the president and approved by the Senate (although these two positions are currently vacant)—is required under the Social Security Act to report annually to Congress on the actuarial status and financial operations of the Old-Age, Survivors, and Disability Insurance (OASDI) program—composed of the federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
This, the 82nd such report, is based on assumptions set in mid-February 2022. The Board says that developments since then have added to the uncertainty regarding the path of the COVID-19 pandemic and the economy.
The State of Things
At the end of 2021, says the Board, the OASDI program was providing benefit payments to about 65 million people:
- 50 million retired workers and dependents of retired workers;
- 6 million survivors of deceased workers; and
- 9 million disabled workers and dependents of disabled workers.
During 2021, an estimated 179 million people had earnings covered by Social Security and paid payroll taxes on those earnings, says the Board.
In 2021, the program cost more than it took in, the Board reports: it cost $1.145 trillion, but brought in $1.088 trillion. Its income came from $1.018 trillion in non-interest income and $70 billion in interest earnings. In addition, says the Board, the program’s asset reserves held in special issue U.S. Treasury securities also declined. They stood at $2.908 trillion on Jan. 1, 2021, and $56 billion less on Dec. 31, at $2.852 trillion.
Total OASDI costs began to be higher than total income in 2021, say the trustees, and Social Security’s costs have exceeded its non-interest income since 2010.
Short-Range Projections
The trustees anticipate continued decline in OASDI fortunes in the next decade, with costs exceeding income in 2022 and the following nine years.
The Board says that this shortfall will contribute to a decrease in the combined OAS and DI reserves in the decade, from $2,852 billion at the beginning of 2022 to $1,251 billion at the end of 2031. These reserves, they say, will cover projected program costs over the next 10 years under intermediate assumptions, but that the ratio of reserves to annual cost will decline from 230% at the beginning of 2022 to 74% at the beginning of 2031.
Long-Range Projections
The trustees anticipate continued decline in OASDI fortunes over the long-range period that ends in 2096.
Under the trustees’ intermediate assumptions, the dollar level of the hypothetical combined trust fund reserves will decline until reserves become depleted in 2035. Considered separately, the OASI Trust Fund reserves would become depleted in 2034; however, the DI Trust Fund reserves would not become depleted. One reason they cite for that result is disability applications have declined substantially since 2010, and the total number of disabled-worker beneficiaries in current payment status has been falling since 2014.
OASDI costs generally have been increasing much faster than non-interest income has since 2008, says the report, and are projected to continue to do so through about 2040. The report looks to demographics to make projections further out:
- 2040-2055: OASDI cost and non-interest income will generally increase at more similar rates as the ratio of program cost to taxable payroll roughly stabilizes, reflecting the return to birth rates above two children per woman between 1990 and 2008.
- 2055-2078: OASDI cost is projected to grow significantly faster than income because of the period of historically low birth rates starting with the recession of 2007-09.
- 2078-2096: OASDI cost is projected to grow somewhat slower than income, as birth rates return to a level of two children per woman for 2056 and thereafter.
The Board expects an actuarial deficit of 3.42% of taxable payroll for the 75-year projection period through 2096.
Implications
If substantial actions are deferred for several years, warn the trustees, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations. Further, it says, significantly larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2035.
The Trustees recommend that lawmakers address the projected trust fund shortfalls “in a timely way” so they can phase changes in gradually and allow workers and beneficiaries time to adjust to them. The report notes that lawmakers “have a broad continuum of policy options” that would either arrest or even reduce the long-term financial woes of the Social Security program, and that cost estimates for many of them are available here.
“Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits,” say the trustees.
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